Underneath international scrutiny, China has to chop metal exports: business physique

© Reuters. Labourer works at cold-rolling mill of Wuhan Iron & Steel Group on outskirts of Wuhan© Reuters. Labourer works at cold-rolling mill of Wuhan Iron & Steel Group on outskirts of Wuhan

By Manolo Serapio Jr

DALIAN, China (Reuters) – China’s international commitment to cut its massive steel capacity has to result in a reduction in exports, an official from the World Steel Association said, as countries around the world scrutinize Beijing’s progress tackling a chronic glut.

While the world’s biggest steel producer appears to be throwing more weight behind efforts to cut capacity, China’s 2016 exports remain on track to beat last year’s record 112 million tonnes and domestic production rose for a sixth straight month in August.

“They have to reduce exports. Unless they reduce exports.. (the capacity cuts) are not effective,” Kazuo Tanimizu, head of the raw materials committee at the World Steel Association, told Reuters on the sidelines of a Chinese steel and iron ore conference.

“It’s an international commitment.”

Faced with global anger from Asia to the United States and Europe over a flood of cheap Chinese steel products, Beijing promised to cut steel capacity this year by 45 million tonnes and by 100-150 million tonnes over five years.

By the end of July, China had only achieved 47 percent of its 2016 target and steel exports in the first eight months had risen 6.3 percent from a year ago to 76.35 million tonnes.

China’s surplus steel capacity stands at around 300 million tonnes, according to industry estimates, or about triple the 2015 output of the world’s second-biggest producer Japan.

“We are monitoring how they will achieve their target,” said Kanimizu. “Honestly speaking their production isn’t going down.”

The World Steel Association represents more than 150 steel producers covering 85 percent of the world’s production, including some major Chinese producers.

Crude steel production by member mills of the China Iron and Steel Association rose 4.7 percent in the first 10 days of September from late August to 1.76 million tonnes per day, the highest since June, according to Macquarie.

China’s own steel demand has peaked, said Kanimizu, while demand in some other emerging economies, such as India, which is driven by its infrastructure boom, is gaining momentum.

Jeremy Platt, an analyst at UK steel consultancy MEPS, believes China’s steel exports will remain high at around 100 million tonnes a year for the foreseeable future.

The capacity cuts have to mean a reduction in net capacity and not just a case of outdated plants being replaced by new ones, said Platt.

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